D.C. Tax Workers Charged In Scam

The average amount for the refund checks generated in the scam was a staggering $388,000, and the losses amounted to several million a year, authorities said. The average alone would constitute an extremely high tax bill, not to speak of a refund, for all but the largest D.C. property owners. In all of fiscal 2007, for example, the office refunded a total of $20.7 million in real property taxes.

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Gandhi, who came to the news conference as a spectator but was questioned repeatedly by reporters, emphasized that the loss of $16 million is "immaterial" to the overall financial stability of the District. He called the scam's apparent success a "major management failure" at the tax office and said he would ask the Internal Revenue Service and D.C. inspector general to look into operations.

Still, he said, "The most sophisticated audits won't be able to find this kind of corruption."

Mayor Adrian M. Fenty (D), who took office in January, said the charges go "to the heart" of the relationship of trust that city government must maintain with taxpayers.

"If these allegations are true . . . this represents one of the most serious breaches of the public trust," Fenty said.

Walters, 51, whose extended family is from the Virgin Islands, had been the manager of the D.C. Real Property Tax Administration Adjustments Unit since 2004. She had worked in the D.C. government since 1981. Gustus, 54, was a program specialist in the office. Sources said the women had a reputation for lavishing their co-workers with gifts from time to time.

At least five other tax and revenue employees are implicated as playing a role in preparing or approving fake refunds, but they were not charged, according to court records. They include a customer service specialist, described as "K.F."; a real property program specialist, "C.W."; a tax sales manager, "C.H."; and two accounting technicians, "G.R." and "S.J." In court papers, authorities said that "K.F." got $10,000 and that "C.W." got $8,000 after one phony refund, totaling $350,000, was cashed in 2005.

Some of these unidentified co-conspirators acknowledged to prosecutors that they received money and gifts, authorities said, and law enforcement sources said investigators hope to win their cooperation in the case.

Meanwhile, an additional 20 employees of the tax office are being interviewed by city officials, and the Fenty administration is holding an "all-hands" meeting for employees of the Office of Tax and Revenue at the Washington Convention Center today.

A longtime employee of the tax office said yesterday that it was difficult for everyone there. "It was like close friends had died suddenly," said the employee, who spoke on the condition of anonymity because of the sensitivity of the case. "This is such a shock. A lot of folks have worked together for a long time. It's always a shock when you find someone you work with is a crook."

Attempts to reach family members of Walters and Gustus were unsuccessful. No one was at the medium-size ranch house that overlooks Rock Creek Park in Northwest Washington that authorities listed as Walters's address. A man who answered the front door at a house listed as Gustus's address in Clinton would not comment on the case. The house, a modest split-level, is in a working-class neighborhood near Surratts Road.

A charging affidavit does not say who came up with the plan. Authorities said Walters and Gustus found ways to prepare and approve the false property tax refunds, as if people's assessment had been unfairly set too high or they had overpaid their taxes.

The refund checks would be made out to sham companies controlled by Walters's relatives and friends or to legitimate companies or law firms but with Walters's friends listed as the purported co-payees. The scheme was able to thrive, according to the affidavit, because tax employees went along with approving documentation that was fake and Walters had the authority to get the payments approved.

Some of the cash was sent to a money exchange institution in the Dominican Republic, authorities said. In the United States, Walters and Turnbull had help from an assistant manager at a Bank of America branch in Baltimore, the affidavit says. That person, who was not charged, was questioned this year and subsequently fired.

The plot began to unravel in July, after an employee at a SunTrust branch in Bowie raised concerns.

The scandal marks another embarrassment for the city. Former Washington Teachers' Union president Barbara Bullock is serving a nine-year prison sentence for her part in bilking the union of almost $5 million. An auction of her $800,000 in designer purses and other goods, seized by the FBI, is set for this weekend.

Staff writers Paul Duggan, Hamil R. Harris, Nikita Stewart and Yolanda Woodlee and staff researchers Dan Keating and Rena Kirsch contributed to this report.